Assessment Compliance Reviews

Overview

The Assessment Compliance Section performs reviews of insured institutions to ensure assessment reporting compliance. During a review, the Assessment Compliance Section verifies whether the insured institution accurately calculates and reports data upon which the FDIC assesses deposit insurance. These reviews primarily focus on the calculation of average consolidated total assets and average tangible equity, although other items may be examined during the course of a review. As a part of the review process, the Assessment Compliance Section compares institutions’ workpapers and source systems of record to the values reported in the Call Report. The Assessment Compliance Section also evaluates the completeness and availability of documentation and considers the timeliness of responses to requests for documentation.

A review for a given period typically takes place after the assessment for that period has been collected. For example, a review of March 31st Call Report data for a given year (insuring deposits for January 1st-March 31st) usually will not take place until after June 30th of that year. An institution must maintain all records that the FDIC may require for verifying the correctness of any assessment for up to three years from the due date of the assessment, as set forth in Section 7 (b)(4) of the Federal Deposit Insurance Act (FDI Act).

The Assessment Compliance Section may perform either a full scope review or a limited scope review. Limited scope reviews require institutions to submit significantly less documentation than do full scope reviews. Upon completion of a full scope review, the Assessment Compliance Section issues a report discussing the institution’s compliance with assessment reporting requirements, the effectiveness of the institution’s documentation, and the institution’s responsiveness throughout the review process. Upon completion of a limited scope review, the Assessment Compliance Section issues a report noting the institution’s compliance with assessment reporting requirements. (Limited scope review reports generally do not address the effectiveness of the institution’s documentation or the institution’s responsiveness throughout the review process.) In some circumstances, an institution may be required to submit amended Call Reports to correct errors in prior periods.

Assessment Review Process

The Assessment Compliance Section generally selects an institution for a review on a random basis, but may consider factors such as asset size, whether or not an institution is classified as a banker’s bank or custodial bank, and the significance and frequency of prior Call Report errors. The general full scope review process is the same for all institutions, but more documentation may be requested for complex cases such as banker’s banks, custodial banks, or large or highly complex institutions. Significantly less documentation is required for limited scope reviews. For both full scope reviews and limited scope reviews, after receipt of the initial documentation package, the Assessment Compliance Section may request additional documentation, support, or clarification to validate reported data upon which the FDIC assesses deposit insurance.

Full Scope Review

At the initiation of a full scope review, the FDICconnect Coordinator of an institution receives an email stating the institution has been selected for review. The email requests that the FDICconnect Coordinator identify a Designated Contact (someone with access to the Examination File Exchange feature of FDICconnect)within the institution to facilitate the review. In addition, the email indicates all documentation and subsequent communication should be conducted through the Examination File Exchange, and notes that an Engagement Letter will be made available through the Examination File Exchange once the Examination File Exchange session is opened.

Within two business days of receiving an email, an institution must:

Provide its Designated Contact information to the Assessment Compliance Section;

Ensure the Designated Contact is an established user in FDICconnect and has been given Examination File Exchange transaction authority within the system;

Provide the Designated Contact with a copy of the email; and

Within 10 business days of receiving an Engagement Letter, an institution must provide the following through the Examination File Exchange feature of FDICconnect:

A consolidated general ledger in Excel format for each of the three month-end dates for the quarterly period subject to the review. Preferably, the consolidated general ledger accounts should be re-formatted so that subtotals are provided for each line item (1a thru 11) in Schedule RC;

An unconsolidated general ledger balance sheet for the institution and general ledger balance sheets for each consolidated subsidiary;

A completed review questionnaire; and

Completed averaging calculation detail for consolidated total assets, total tangible equity, and if applicable, for the banker’s bank deduction/limit and custodial bank deduction/limit. These amounts should agree to the amounts reported in the Call Report schedules. If they do not agree, institutions should provide an explanation for the differences or a reconciliation of the balances.

Upon successful completion of a full scope review, the Assessment Compliance Section issues an Assessment Review Report to the institution’s Chief Executive Officer or to the institution’s Designated Contact for the review. Depending on the severity of the errors identified during the review, the report will require the institution to either send the report to the CEO within five business days, or present the findings from the review to the Board of Directors. The report details any deficiencies identified during the review associated with the following:

Supporting documentation for all adjustments or reconciling items between the source systems of record and the reported amounts; and

Timeliness of responses to requests for information.

Limited Scope Review

The process for a limited scope review is generally the same as for a full scope review, although an official engagement letter is not provided in a limited scope review. Documentation requested in a limited scope review is generally comprised of a review questionnaire and averaging calculation details for average consolidated total assets and average tangible equity.

Upon successful completion of a limited scope review, the Assessment Compliance Section issues a report to the institution’s Designated Contact detailing assessment reporting errors identified during the review. The report indicates the Designated Contact must send the report to the institution’s CEO within five business days.

Special Circumstances

Mergers and Consolidations

Average Consolidated Total Assets

If the reporting institution is the surviving or resulting institution in a merger or consolidation that occurred during the calendar quarter, the reporting institution should calculate its average consolidated total assets by including the consolidated total assets of all entities that were merged or consolidated into the reporting institution, as if the merger or consolidation occurred on the first day of the calendar quarter. Acceptable methods for including a merged or consolidated entity’s consolidated total assets in this calculation for the days during the calendar quarter preceding the merger or consolidation date include using (a) the acquisition date fair value of the merged or consolidated entity’s consolidated total assets for all days during the calendar quarter preceding the acquisition date or (b) the merged or consolidated entity’s consolidated total assets, as defined for Schedule RC-K, item 9, for each day during the calendar quarter preceding the acquisition date.

If the reporting institution was acquired in a transaction that became effective during the calendar quarter and push-down accounting was used to account for the acquisition, the reporting institution should calculate its average consolidated total assets as if the acquisition occurred on the first day of the calendar quarter. Acceptable methods for including the institution’s consolidated total assets in this calculation for the days during the calendar quarter preceding the acquisition date include using (a) the acquisition date fair value of the reporting institution’s consolidated total assets for all days during the calendar quarter preceding the acquisition date or (b) the reporting institution’s consolidated total assets, as defined for Schedule RC-K, item 9, for each day during the calendar quarter preceding the acquisition date.

Average Tangible Equity

If the reporting institution is the surviving or resulting institution in a merger or consolidation that occurred after the end of the first month of the calendar quarter and it reports its average tangible equity on a monthly average basis, the reporting institution should calculate its average tangible equity as if the merger or consolidationoccurred on the first day of the calendar quarter. An acceptable method for measuring tangible equity for month-end dates during the calendar quarter preceding the merger or consolidation date is to use the amount of Tier 1 capital for the month-end date immediately following the merger or consolidation date as the amount of Tier 1 capital for the month-end date or dates preceding the merger or consolidation date.

If the reporting institution was acquired in a transaction that became effective after the end of the first month of the calendar quarter, if push down accounting was used to account for the acquisition, and if the institution reports its average tangible equity on a monthly average basis, the reporting institution should calculate its average tangible equity as if the acquisition occurred on the first day of the calendar quarter. An acceptable method for measuring tangible equity for month-end dates during the calendar quarter preceding the acquisition date is to use the amount of Tier 1 capital for the month-end date immediately following the acquisition date as the amount of Tier 1 capital for the month-end date or dates preceding the acquisition date.

Special Instructions for Institutions with an Insured Institution Subsidiary

A few insured banks and thrifts own another separately-chartered, FDIC- insured bank or thrift, and operate it as a subsidiary. The FDIC is required to assess each insured institution separately. If the reporting institution has an FDIC-insured depository institution subsidiary, the reporting institution should report its average consolidated total assets and tangible equity capital without consolidating its insured depository institution subsidiaries. In order to avoid paying duplicate assessments, both the parent institution and subsidiary bank or thrift should each report only their own average consolidated total assets and average tangible equity on the assessment lines.

Certain assessment base deductions are allowed for qualifying banker’s banks and qualifying custodial banks, as defined in part 327 of the FDIC’s regulations.

Banker’s Banks

A qualifying banker’s bank1 is eligible to have certain assets deducted from its assessment base, as defined in Section 327.5 of the FDIC’s regulations, subject to a limit. There are three reporting elements for a qualifying banker’s bank allowable deduction: (1) banker’s bank certification; (2) banker’s bank allowable deduction; and (3) banker’s bank deduction limit. Although these reporting elements are summarized below, please refer to the current Call Report instructions for lines 10, 10(a) and 10(b) of Schedule RC-O, and the relevant FDIC Rules and Regulations, for more specific guidance.

Certification

A banker’s bank certifies itself as a banker’s bank by reporting “Yes” on Line 10 of Schedule RC-O in the Call Report. In order to meet the certification criteria, a bank must meet the definition of a banker’s bank as defined in 12 U.S.C. 24 and must also meet the business conduct test set forth in Part 327.5(b)(3) of the FDIC Rules and Regulations. To meet the business conduct test, a bank must conduct 50 percent or more of its business with entities other than its parent holding company or entities other than those controlled either directly or indirectly by its parent holding company. Control has the same meaning as in section 3(w)(5) of the Federal Deposit Insurance Act [12 U.S.C. 1813(w)(5)].

Allowable Deduction

The banker’s bank allowable deduction, subject to the deduction limitation, equals the sum of the qualifying banker’s bank’s average balances due from Federal Reserve Banks plus its average federal funds sold. These averages should be calculated on a daily or weekly basis consistent with the qualifying banker’s bank’s calculation of its average consolidated total assets in Schedule RC-O, item 4.

Deduction Limitation

The banker’s bank allowable deduction cannot exceed the sum of the banker’s bank’s average deposits due to commercial banks and other depository institutions in the U. S. plus its average federal funds purchased. These averages should be calculated on a daily or weekly basis consistent with the banker’s bank’s calculation of its average consolidated total assets.

Custodial Banks

There are three reporting elements for a qualifying custodial bank: (1) custodial bank certification; (2) custodial bank deduction; and (3) custodial bank deduction limit. These items are reported on Lines 11, 11(a) and 11(b) in Schedule RC-O of the Call Report. Although these reporting elements are summarized below, please refer to the current Call Report instructions for more detailed guidance.

Certification

An institution that meets the definition of a custodial bank per 12 CFR § 327.5(c)(1)2 certifies itself as a custodial bank by reporting “Yes” on Line 11 in Schedule RC-O of the Call Report.

Custodial Bank Deduction

The custodial bank’s allowable deduction, subject to the deduction limitation, equals the average sum of certain qualifying low-risk assets as detailed in the Call Report instructions for Line 11(a) of Schedule RC-O. Qualifying low-risk assets are determined without regard to the maturity of the assets. These averages should be calculated on a daily or weekly basis consistent with the custodial bank’s calculation of its average consolidated total assets in Schedule RC-O, item 4.

Custodial Bank Deduction Limitation

The Custodial Bank deduction is limited to an amount no greater than the average daily or weekly balances of transaction account deposit liabilities that are directly linked to a fiduciary, custodial, or safekeeping account reported in Schedule RC-T. This limitation is reported on Line 11(b) in Schedule RC-O of the Call Report. The term “transaction account” is defined in Federal Reserve Regulation D. In general, a transaction account is a deposit or account from which the depositor or account holder is permitted to make transfers or withdrawals by negotiable or transferable instruments, payment orders of withdrawal, telephone transfers, or other similar devices for the purpose of making payments or transfers to third persons or others, or from which the depositor may make third party payments at an automated teller machine, a remote service unit, or another electronic device, including by debit card.

The titling of a transaction account or specific references in the deposit account documents should clearly demonstrate the link between the transaction account and a specific fiduciary, custodial, or safekeeping account. Alternatively, for trust account cash that is commingled and placed into one or more omnibus transaction accounts in an affiliated commercial bank or thrift, the deposits should be included in the calculation of the daily or weekly average account amount only if the account title indicates the existence of a custodial or agency relationship, and records of the identities of the owners, as well as the amount owned by these customers, are kept. For such omnibus transaction accounts, only the portion of the account balances that can be clearly linked to a fiduciary, custodial, or safekeeping account can be included in custodial bank allowable exclusion on the Call Report RC-O, item 11.b.

1The definition of “banker’s bank” is set forth in 12 U.S.C. 24 Seventh, which states that a banker’s bank is an FDIC-insured bank where the stock of the bank or its parent holding company “is owned exclusively (except to the extent directors’ qualifying shares are required by law) by depository institutions or depository institution holding companies (as defined in section 1813 of this title)” and the bank or its parent holding “company and all subsidiaries thereof are engaged exclusively in providing services to or for other depository institutions, their holding companies, and the officers, directors, and employees of such institutions and companies, and in providing correspondent banking services at the request of other depository institutions or their holding companies.”

2“A custodial bank for purposes of calculating deposit insurance assessments shall be an insured depository institution with previous calendar-year trust assets (fiduciary and custody and safekeeping assets, as described in the December 31, 2010 instructions to Schedule RC-T of the Consolidated Report of Condition and Income) of at least $50 billion or an insured depository institution that derived more than 50 percent of its total revenue (interest income plus non-interest income) from trust activity over the previous calendar year.”

FDICconnect and Examination File Exchange (EFE)

FDICconnect

FDICconnect is the secure online channel for FDIC-insured institutions to conduct business and exchange information with the FDIC. It is imperative that your institution have an active FDICconnect Coordinator and that a succession plan exists to replace the Coordinator and any other designated FDICconnect users in the event of staffing and/or responsibility changes within your institution.

Examination File Exchange (EFE)

EFE is a feature of FDICconnect that establishes secure electronic communication between an insured institution and the FDIC. The FDIC establishes an EFE “session” with an institution at the beginning of a review. The FDIC and the institution under review use the EFE session to securely transfer files and messages throughout the review.

Gaining Access

To access EFE, an institution must have at least one FDICconnect Coordinator. The Coordinator has the ability to approve other personnel as “users” of each individual FDICconnect function. Most FDIC insured institutions have already completed the registration process and designated a FDICconnect Coordinator. The registration process is explained in detail on the FDICconnect website at https://www2.FDICconnect.gov/.

FDICconnect Coordinator Responsibilities

Once your institution has been selected for an assessment review, the FDIC will formally notify your institution’s FDICconnect Coordinator via an e-mail message with relevant instructions. Following receipt of the notification e-mail, the Coordinator should:

Promptly identify to the FDIC your institution’s Designated Contact(s) for the assessment review.

Ensure the Designated Contacts are registered FDICconnect users. If the Designated Contacts are not yet FDICconnect users, they must complete the registration process through the FDICconnect website.

Use of EFE During An Assessment Review

Once your institution identifies its Designated Contacts for the review and establishes EFE access for these Designated Contacts, the FDIC will initiate an EFE “session” with the Designated Contacts and the FDICconnect Coordinator. The EFE session will include instructions for the review along with relevant documents, sample templates, and/or questionnaires to be completed. When the EFE session is initiated, FDICconnect sends an automatic email to your institution’s Coordinator and Designated Contacts. Please see the Exhibit below for a sample notification email.

The FDIC has initiated a file exchange session with you from FDICconnect.

FDIC Contact: John Doe

Contact Information: 999-999-9999

Exam Type: Assessment

Session Description: Assessment Review

Expiration Date: 01/31/2013

Please log-in to https://www2.fdicconnect.gov/ to access the session.

FDICconnect sends similar notification emails each time the insured institution or the FDIC submits information to the session.

An EFE session remains open until the FDIC completes the assessment review and issues a final report. All files and correspondence exchanged during the review remain available while the EFE session is open. Once the FDIC closes the EFE session at the conclusion of the review, the files and correspondence are no longer available through EFE. It is your institution’s responsibility to retain backup files of information sent to the FDIC.

For problems with FDICconnect or EFE, institution personnel should first contact the institution's FDICconnect Coordinator. A comprehensive EFE Help link is available on each EFE page and provides simple instructions on how to use EFE and exchange files with the FDIC.